Navigating Finance during COVID-19 – What’s the pulse on the ground?
COVID-19 has sent shock waves through the business and finance community. Governments across the region have deployed lockdown tactics in a bit to contain the virus transmission. Inevitably, spill over effects are eminent for businesses which had their operations stalled by the coronavirus. More recently, Mainland China has begun permitting movement and allowing businesses to resume operations. As for the rest of the region, attempts to ‘flatten the curve’ are still very much undertaken.
Even as we nervously watch the series of events unfold, there are opportunities businesses can harness. Sowing the seeds of improvement will allow businesses to emerge stronger in the post-coronavirus era that awaits.
In March, LucaNet ASEAN surveyed finance leaders on how their teams are navigating through these extraordinary times. In addition, we gathered a panel of 9 Finance leaders to share their insights on the COVID-19 situation in mid-April. These surveys and discussions offer a glimpse into the impact COVID-19 has had on the business community.
In this piece, we will discuss key observations made from our survey and discussions. Moreover, we will highlight several schemes available to support enterprises. There is much that can be done, even in times of adversity.
At a glance:
- 91% of businesses were either moderately, or severely, impacted by COVID-19.
- 89% of all respondents believe the impact of COVID-19 will last over half-a-year.
- Over 60% of all respondents are implementing cost controls and undertaking process improvements during this COVID-19 period.
How has COVID-19 impacted operations?
Figure 1: Impact on business operations by stratified firm size
An overwhelming majority of businesses (at 91%) face either moderate or severe disruption to their businesses. We observed that firms with less than 20 employees saw their businesses affected more severely as opposed to larger firms. Several finance leaders echoed their observation that some Small-Medium Enterprises saw their revenue generating activities drop as much as 90% during our CFO Discussion panel in mid-April. Moreover, investors are growing weary of proceeding with investments during this period; finance leaders shared that several investors have held off on proceeding with previously scheduled deals.
This also unveils the general state of emergency preparations for many smaller operations – which are typically in the start-up phase. The pandemic serves to highlight the importance of business continuity planning regardless of the firm’s size. While not all effects are possible to be mitigated, businesses can attempt to mitigate the risks that can be addressed.
Figure 2: Impact on finance processes by industry cluster
Our analysis reveals that industries heavily reliant on physical operations suffered most. We observe a larger proportion of lifestyle providers and manufacturing companies reflect that they were severely impacted by the situation. As Malaysia’s Movement Control Order moves into its third extension and Singapore’s “Circuit-Breaker” sees tightening measures with its upcoming four-week extension, many businesses which were deemed “non-essential” were asked to shut. The responses are consistent with our understanding of the potential impacts of such restrictions.
Finance processes, however, were affected to a lesser extent. The objective hasn’t changed in finance – cost controls, financial planning is still important, but the lens at which we look at finance has changed. Over the years, finance leaders have been painstakingly embarking on their digital transformation. Some of these efforts paid off. Companies are now, more than ever, relying on finance teams to provide the direction ahead.
Which challenges surfaced most in the corona crisis?
Figure 3: Challenges faced by Businesses
There is a consensus on the three greatest challenges that businesses face:
- Team collaboration and communication – Digitalisation has accelerated rapidly in the last few years. COVID-19 has been an even more-so pressing need for companies to digitalise, as governments call on companies to embrace telecommuting.
This is change like no other. It is a revolution of the way we see work; a redefinition of routines we grew comfortable to. Notwithstanding that – our finance leader panellists reflect that this may very well be the new way of work. This situation highlights the heightened opportunities we can embrace in working from home, making possible what previously was not. The beginning is often the hardest, but this may very well be the new way of work.
- Increase in demand for financial insights from stakeholders – This confirms that businesses are increasingly relying on finance teams to lead the way. With transactional data that has been amassed, we can look forward to deriving insights from the financial information captured.
- Modelling of alternative business strategies – Going online is key in this push. Building a remote presence and processes that enable businesses to operate without having to be present physically. Whilst this is not possible for all industries, those that can will see a change in this area.
Undoubtably, we acknowledge that there is a myriad of issues that businesses currently face. It is without surprise that companies are addressing some of these issues symptomatically as we begin to react to the pandemic. However, going forward – we observe that leaders are planning to drill down to the fundamentals and examine what they can do to overhaul the value proposition and processes of the business.
What are companies doing to adapt in times of the corona crisis?
Figure 4: Strategies adopted by companies in response to COVID-19
There are three phases to tackling crises such as COVID-19: shock, endurance and recovery (Palacci D.. 2020). Our findings show that majority of the businesses are transitioning from the first to second phase of endurance. The top strategies adopted are consistent through all industries – implementing cost control, undertaking process improvements and identifying alternative revenue opportunities. These tasks will understandably take time to implement but will also make the firms’ business more resilient prospectively.
89% of respondents believe that the impact of COVID-19 will last more than half-a-year. The weighted-average expected duration of the impact hovers around 3 quarters. This time buys businesses the time to reinvent themselves and bolster their processes during this time of crisis.
Figure 5: How long firms believe the coronavirus situation will last
Regional governments have responded by aggressively providing credit to facilitate working capital and supporting businesses to digitalise. These are some measures:
- Singapore – The measures announced in the SGD 59.9 billion supplementary budgets present support in terms of jobs (Absentee payroll, Job Support Scheme), working capital (Enterprise Financing Scheme) and digitalisation (Enterprise Development and Productivity Solution Grant). Enterprises incorporated in Singapore can utilise these measures to tackle the biggest challenges they face.
- Malaysia – The newly-minted Perikatan Nasional government’s RM 250 billion (SGD 81.7 billion) stimulus package has announced measures targeted at improving firms’ working capital – these include income tax deferments and an additional RM4.5 billion loan facility for SMEs. There is also a social finance programme to support B40 entrepreneurs with training and financing.
- Thailand – The Thai government has issued a series of executive decrees to bring forth a THB 1.68 trillion (SGD 73.8 billion) stimulus package. The Bank of Thailand was given a mandate to directly extend soft loans to SMEs. The other business support support targets small-scale farmers, temporary employees, business operators and workers covered by the social security system and non-bank financial institutions.
- Indonesia – The Indonesian government has issued a Perppu (government regulation in lieu of law) that will boost state spending by Rp 405.1 trillion (SGD 40.3 billion). 55% of the stimulus package will go towards tax incentives, credits for enterprises and credit restructuring for SMEs.
In a bid to aid businesses with digitalisation and planning the way forward, LucaNet ASEAN is announcing a Financial Planning First Aid Kit for Small-Medium Businesses. With the CAPEX and OPEX requirements eminent, being able to forecast these prospectively are crucial. Firms based in Singapore can also look forward to substantial support from Enterprise Singapore’s Enterprise Development Grant while using LucaNet.
For more information, please click here.
Adversity presents an opportunity – for businesses to take a step back, rebuild, and emerge stronger in the post-coronavirus era. Digitalisation and revitalising the firm’s products and processes are crucial. The decisive action of business and finance leaders today will define the successes of tomorrow – if only we begin to act now to build our firms for the future.
Watch a replay of our panellists’ discussions here.